A restoration contractor that had been assigned benefits by a policyholder cannot pursue a bad faith claim against an insurer because it was not a party to the insurance contract, the Nebraska Supreme Court ruled Friday in two separate cases.
This was the first time the high court addressed the question of whether bad faith claims filed by contractors working under an assigned-benefits contract are allowed under Nebraska law, said Omaha attorney Michael T. Gibbons, who represented the insurers in both lawsuits.
“The high court’s decision reaffirms Nebraska’s conservative view of first-party bad faith by limiting such claims between the parties in contract with one another and by preventing the use of post-loss assignments to escalate claims beyond the rights and obligations in the contract between the insurer and the insured property owner,” Gibbons said in an email. “This decision will help to control premiums and benefit homeowners across the state.”
Both cases involved claims made by Millard Roofing and Gutter, which had entered into assignment-of-benefit contracts with property owners who said they needed roof repairs after a 2013 hailstorm.
In one case, Farm Bureau Property & Casualty Co. appealed a decision by the Court of Appeals that found the trial court had prematurely dismissed its breach of contract and bad faith claims against the insurer. In the other case, the Supreme Court bypassed the Court of Appeals and decided to hear a similar lawsuit that Millard filed against Shelter Mutual Insurance Co. after the case was dismissed by the trial court.
Gibbons said during a telephone interview that bad-faith claims weren’t even recognized in Nebraska until 1991, when the Supreme Court ruled in Braesch v. Union Ins. Co. that a policyholder could bring an action against an insurer that unreasonably delayed resolution of a valid claim. The state did not recognize assignment-of-benefit claims until 2016, when it ruled on another case that also pitted Millard Roofing and Gutter against Farm Bureau.
Gibbons said assigned-benefit claims became more common after out-of-state contractors saw an opportunity after a series of hailstorms caused widespread property damage in the state.
Millard obtained assignments from numerous policyholders after the 2013 hailstorm. In April 2018, the company filed a lawsuit against Shelter Mutual in Douglas County District Court alleging breach of contract and bad faith. The complaint did not identify the location of the insured properties or the date of the alleged damage or when the assignments were made.
The district court ordered Millard to file “a more definitive statement” of damages in an amended complaint, with pertinent policy numbers and the assignments. The court also dismissed the bad faith complaint, interpreting Braesch to restrict such filings to actual policyholders.
The Supreme Court decided to review the trial court’s decision after Millard filed an appeal, skipping the intermediate appellate court.
In the other case, Millard appealed the dismissal by another Douglas County judge of a separate breach-of-contract and bad faith lawsuit that Millard filed against Farm Bureau for failing to pay its assigned-benefit claims. The Court of Appeals ruled that the trial court had erred by dismissing the claims before holding a trial.
In the Shelter Mutual case, the Supreme Court ruled that District Court Judge Shelly R. Stratman made the right call about third-party bad-faith claims.
“The implied covenant of good faith and fair dealing that Nebraska law imposes on insurers ‘is dependent upon a contractual relationship between the [policyholder] and the insurer,'” the court said in a unanimous decision. “There is no contractual relationship between Shelter and Millard Gutter, and the postloss assignments did not create one.”
In the Farm Bureau case, the Supreme Court said District Court Judge Kimberly Miller Pankonin made the right call about Millard’s bad-faith claims. Pankonin had abused her discretion, however, when she ordered Millard to amend its complaint to include more specifics, the high court said.
The court remanded the breach-of-contract claims back to the trial court for further proceedings.